Donald Trump has lost no time in ditching the mantra of free trade which has underpinned global prosperity since the second half of the 20th century.
The US President’s imposition of a 25 per cent duty on Mexico and Canada, and a doubling to 20 per cent of the tariff on China, sends an ominous message to the European Union and the rest of the world.
The levies on America’s neighbours and China, penalising £1.8 trillion of global trade, is an enormous blow to international growth prospects and threatens to bring a shuddering halt to the Trump rally on equity markets, which dates back to the November presidential election.
The speed with which the White House has followed through with its penal measures against Canada and Mexico, ending three decades of frictionless commerce across North America, resulted in immediate retaliation.
Canada’s prime minister Justin Trudeau announced that Ottawa would respond by imposing a 25 per cent levy on £16.6billion of US exports across its northern border including beer, bourbon whiskey, white goods such as washing machines, and Florida orange juice. China is also taking action.
Any hopes that the EU might escape the wrath of Washington looks unlikely although, thankfully, Britain is avoiding the bullet so far.
Threat: Donald Trump’s tariffs on Mexico and Canada, and a doubling to 20% of the tariff on China, sends an ominous message to the EU and the rest of the world
There is already outrage in European capitals over Trump’s contemptuous suggestion that the EU was only formed ‘in order to screw the United States’.
The president’s use of shrill language against the EU trade policy has given Britain reason to breathe a temporary sigh of relief.
Brexit means the UK should be able to escape the immediate impact of the Trumpian assault on the 27-member countries of the EU.
Indeed, in his meeting with Keir Starmer last week, Trump floated the idea of a trade deal with London, albeit confined to some sort of truce over the treatment of Big Tech. A comprehensive deal, opening UK to the delights of chlorinated chicken, seems less likely.
Trump’s approach to international commerce means it will be hard for Britain to totally avoid any new US quotas.
One only must look at the presumptuous way in which the White House discarded previous treaties with Mexico and Canada to recognise that when it comes to free trade, Trump has a very different approach to his free market Republican predecessors such as Ronald Reagan.
It will require an act of leadership and a dollop of guile for Starmer, who met with Trump at the White House last week, to steer Britain – more dependent on open markets than any other G7 rich country – through the shoals of Trump’s disruptive approach to international commerce without harm being done to the UK.
The last Trump administration targeted single malt whisky, one of Britain’s cash exports to America.
Trump has two mighty complaints about the EU. He is highly resentful of the millions of European-made cars plying the highways and byways of the United States, whereas very few American cars are to be found on the autobahns.
He ignores the fact that the big US manufacturers – Ford, General Motors, Chrysler (now part of European-based Stellantis) and Tesla – manufacture and sell motor cars on the Continent and in Britain, albeit under different marques.
Trump similarly is obsessed that US goods sold in Europe incur VAT whereas there is no such universal sales tax in America where it varies from state to state and at much lower levels.
The president fails to recognise that VAT doesn’t discriminate against American imports because it is charged on all goods above a certain value.
Goldman Sachs estimates that if the US were to impose reciprocal tariffs on European goods, a mirror image of those faced by American products in Europe, the levies required would be just 2 per cent. VAT, in contrast, is the whopping 20 per cent feared.
Part of the Prime Minister’s task in Washington was to persuade Trump that Britain is no threat to the United States on the trade front.
US merchandise trade data shows that America is Britain’s biggest single commercial partner. Some £304billion of goods were traded in 2024 with the UK incurring a small deficit.
In contrast, Germany, the EU’s economic locomotive, had a big trade surplus with the US.
The main difference for the UK is its dominance in the trade of financial and business services, so-called invisibles.
The UK earned a large invisibles surplus of £67.5billion with the US in the year to mid-2024.
Services do not generally face direct tariff barriers. And with several of the big American investment banks running global operations from London, it would be tricky to impose meaningful penalties on the UK services trade.
The difficulty – as Canada, Mexico and China are now learning to their cost – is Trump’s unpredictability.
By whacking 25 per cent tariffs on the exports of supposedly friendly nations, he has exposed the world economy to the threat of full-scale, tit-for-tat retaliation.
History tells us that such beggar-thy-neighbour policies can only destroy global commerce, damage output, and undermine the jobs and living standards of ordinary citizens.
Corporations around the world may have no choice but to hike prices, portending a new bout of inflation and fewer interest rate cuts than previously had been forecast.
As for stock market investors, they should reach for the seatbelts – serious turbulence is on the way.
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